Fed Economists Predict Mild US Recession This Year, 2-Year Recovery

  • The Fed’s own economists predict a mild recession later this year, the latest meeting minutes show.
  • Unemployment could jump and the economy might not fully recover until 2025, they said.
  • If the US financial system comes under more stress, a harsher recession could take hold, they said.

The Federal Reserve’s own economists are predicting a mild recession this year – and a recovery to take two years, according to the minutes from the Fed’s latest meeting. 

“For some time, the forecast for the US economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market,” FOMC minutes from the Fed’s March policy meeting said. 

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” it added. 

The economic downturn could result in higher unemployment, the minutes said. The Fed’s staff economists added that they expect the US economy would fully recover by 2025. 

Recession fears were reignited this year after chaos broke out in the US banking industry, following the collapse of Silicon Valley Bank and Signature Bank. The turmoil has stoked fears that regional banks could be overwhelmed by waves of withdrawals or “bank runs,” and concerns that lenders could pull back, triggering a credit crunch and ultimately a recession.

Fed economists noted the economic outlook is especially hard to gauge now compared to the past due to the banking turmoil. They cautioned that if the financial system faces even more pressure, their forecasted recession would be worse than average downturns.

“Historical recessions related to financial market problems tend to be more severe and persistent than average recessions,” the minutes said. 

Despite banking stress, the staff economists — who typically brief Fed policymakers before making interest-rate decisions — highlighted in March that a 25-basis point rate hike was still necessary to curb high inflation. 

The Fed has raised benchmark interest rates to upwards of 4.75% from almost zero 12 months ago — the steepest jump in US borrowing costs since the 1980s – to squash surging inflation which came in at 5% year-over-year last month.  

Higher interest rates have also contributed to recession fears, with market veterans like David Rosenberg saying the central bank would be wrong to make any more rate hikes. Traders are bracing for the Fed’s next policy decision in May, and many expect another 25-basis-point rate hike, fed funds futures show. 

Source link

We will be happy to hear your thoughts

Leave a reply

Enable registration in settings - general
Shopping cart